Legal Updates for Coverage and Bad Faith

December 5, 2017

Presented by the Insurance Coverage/ Bad Faith Litigation Group

Edited by Allison L. Krupp, Esq.

The Supreme Court of Pennsylvania held that the statute of limitations for uninsured motorist claims does not begin to run until after the insurer has either denied coverage for the claim or refused to arbitrate the claim.

Erie Ins. Exchange v. Bristol, 2017 Pa. LEXIS 3183 (Pa. 2017)

On November 22, 2017, the Supreme Court of Pennsylvania issued a precedential Order and Opinion in Erie Ins. Exchange v. Bristol, J-45-2017 (Pa. 2017) regarding "when the statute of limitations begins to run on an uninsured motorist (UM) claim under an insurance policy." Justice Mundy authored the 6-1 Opinion.

Bristol had been injured in a hit and run accident while engaged in the scope of his employment on July 22, 2005. His employer was insured by Erie, whose policy included UM limits of $500,000, as well as an arbitration clause that provided for binding resolution of disputes regarding liability and damages.

On June 19, 2007, Bristol put Erie on notice of his UM claim. By letter, dated July 9, 2007, Erie reserved its rights. Both parties subsequently selected arbitrators, and Erie obtained Bristol's statement under oath. In September 2012, the parties exchanged correspondence regarding Bristol's unrelated incarceration and the need to await his release to schedule further proceedings. No further action was taken until Erie filed a declaratory judgment action on May 29, 2013, asking the court to declare that Bristol's UM claim was barred by the four-year statute of limitations. Specifically, Erie argued that the statute began to run on the date of the accident, when Bristol was unable to identify the vehicle involved in the hit and run. Bristol argued that Erie's reservation of rights and agreement to arbitrate precluded application of the statute of limitations and that, even if the statute had commenced, it was tolled by the agreement to arbitrate and selection of the arbitrators.

The trial court granted Erie's motion for summary judgment, finding that the statute of limitations commenced on the date of the accident. The Superior Court affirmed in an unpublished opinion, holding that the statute begins to run on a UM claim when an insured sustains an injury as a result of an accident and knows the owner or operator is uninsured.

On appeal to the Pennsylvania Supreme Court, Erie urged the court to endorse the long line of Superior Court cases, commencing with Boyle v. State Farm, 456 A.2d 156 (Pa. Super. 1983), which have held that the four-year statute of limitations begins to run when the insured knows the existence of the UM claim.

The court considered that "the time within which a matter must be commenced under this chapter shall be computed from the time the cause of action accrued" and that "it is the accrual of the right of action that starts a limitations period to run." Thus, applying those principles to a UM claim, the court found that "the statute of limitations would begin to run when the insured's cause of action accrued, i.e., when the insurer is alleged to have breached its duty under the insurance contract."

Bristol argued that the Superior Court's decision encourages insurers to delay negotiations, discovery and evaluations to "lull a claimant into a false sense of security." In contrast, Erie argued that "if the statute on a UM action did not begin to run until the alleged breach occurred, there would be no limit to the amount of time a claimant could extend the matter," and "[t]his would be detrimental to the application of UM and UIM policies, and would lead to confusion, difficult if not impossible [sic] to measure damages, unnecessary waste of judicial economy and is against public policy."

The court found that these "apprehensions about an insured delaying submission of a claim or an insurer delaying action on a claim may be of concern but do not justify departing from the normal breach of contract principles attendant to triggering the statute of limitations." The court also considered that an insured would "rarely" be advantaged by delaying submission of a claim and that insurers must act in good faith. The court noted that "deviations from these norms may be addressed on equitable grounds or in other ways based on particular facts." (The court does not specify or provide examples of "equitable grounds" or "particular facts" that may warrant such a deviation.)

Thus, the court concluded, "The proper circumstances to start the running of the limitation period is an alleged breach of the insurance contract, which will be occasioned in this context by a denial of a claim or the refusal to arbitrate. This is the point when 'the cause of action accrued.'" The court explained that it was overruling Boyle and its progeny to the extent that those cases conflict. Finally, the court found that, because it was undisputed that Erie had neither refused arbitration nor denied coverage, "Bristol had no accrued cause of action to initiate through the court either by complaint or motion to compel arbitration," and that "the trial court erred in granting summary judgment to Erie in its declaratory judgment action on the basis that the statute of limitations had expired . . . ."

As the only Justice to dissent, Justice Wecht did not disagree with the majority's holding, but he did note that the majority was overturning more than 30 years of Superior Court precedent. He also found that the issue was not properly before the court since Bristol had not previously argued that the four-year statute of limitations governing UM claims begins to run when the insurer rejects the claim. Issues not raised before the trial court are waived on appeal.

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